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Regnan: ESG engagement must evolve to better protect investors

Sustainable investing leader Regnan is exploring new approaches to ESG engagement. Regnan’s ALISON EWINGS explains

THESE days it’s a basic expectation that active managers will meet regularly with investee companies and issuers to drive behaviour that benefits shareholders and the community.

“Engagement”, as it’s known in the investment industry, is usually undertaken on a one-to-one basis between an investor and an investee.

For example, sustainable leader Regnan last year engaged with 40 ASX-listed companies – some on multiple occasions – as part of its Australian program. Engagements aimed to reduce economic, social and environmental risk to client portfolios.

Regnan’s 2022 engagement report From Stock to System (PDF) shows demonstrated progress in 98 per cent of engagements.

But as interest in ESG snowballs — and the complexity of issues increases — engagement must evolve to ensure continued effectiveness, says Regnan’s head of engagement Alison Ewings.

Engagement can be more successful — particularly on portfolio-wide risks — if it shifts away from a company-by-company approach and evolves into collaborative, systems-wide activity, says Ewings.

Evolution of engagement

Regnan’s latest report sets out the changing nature of engagement amid worsening greenhouse gas emissions, rising inequality and repeated examples of poor corporate practice.

It’s becoming clear that we need to look beyond closed-door, direct engagement with directors and company leaders to truly tackle these systemic risks, says Ewings.

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“Historically, we’ve engaged in a very bottom-up fashion, looking at the ESG risks to an individual company.

“While there is still a role for this kind of engagement, we must acknowledge that individual companies are limited in the actions they can take on some ESG issues.

“For these multifaceted, system-wide issues, one-to-one engagement will not be enough to reduce the risks to portfolios.

“Climate change is a classic example.

“You can divest your way out of the risks to a certain point. But if climate change is left unchecked, it will still create risk in portfolios and the potential for associated economic shocks.”

New models for engagement

As a result, Regnan is making changes to its activities and investigating new models for engagement.

“We are approaching engagement in two ways.

“One is to engage right along the value chain to achieve system change and reduce portfolio risks from major ESG trends.

“The other is to look at opportunities to bring companies together to address these issues.”

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Ewings points to Regnan’s establishment of a roundtable on sustainable agriculture , which brings together senior executives and directors to identify barriers to shifting to more sustainable agricultural and food production practices.

“The full impact is still unknown but it’s proving an effective way of raising awareness and developing a deeper understanding of these issues among market participants,” she says.

Progress on diversity, equity and inclusion

Regnan also had success during the year with its work on diversity, equity and inclusion, including a research paper that explored why companies struggle to make meaningful progress on diversity.

“We looked at how organisations can achieve their diversity goals in a meaningful way — both for individuals and for organisational value creation,” says Ewings.

Regnan’s research found that diversity strategies must include a conscious focus on inclusion and equity to reap the upside of a diverse workforce.

Other engagements during the year focused on issues ranging from the financial service sector’s exposure to carbon emissions, the physical risks of climate change and how companies can reduce the risk of exposure to modern slavery.

“These are significant changes to the way that we undertake our engagement activities,” says Ewings.

“Our ability to make positive change by engaging with single actors is becoming limited as the issues become more complex.

“We have to be actively exploring new models for engagement to address these system-wide challenges.”

A more intentionally inclusive approach to problem solving also enhances the pool of ideas for how to tackle major societal challenges, she says.

About Alison Ewings

Alison is Head of Engagement at responsible investing leader Regnan. Regnan is a Pendal Group business.

Alison manages Regnan’s program of engagement with ASX-listed companies, which aims to help improve business performance by addressing issues such as climate change, modern slavery and Indigenous relations.

Alison has worked in sustainability for more than a decade and was formerly the Head of Sustainability at Westpac.

About Regnan

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.

The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.

The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Both funds are distributed by Pendal in Australia.

Visit Regnan.com

Find out about Regnan Global Equity Impact Solutions Fund

Find out about Regnan Credit Impact Trust

For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at October 19, 2022. PFSL is the responsible entity and issuer of units in the Regnan Global Equity Impact Solutions Fund (Fund) ARSN: 645 981 853. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com

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